Cashflow Forecasts Are Vital For Covid Funding

Cashflow Forecasts Are Vital For Covid Funding

The businesses best placed to succeed post Covid-19 and Brexit will be those who invest time now mapping out the future and articulating that plan in writing, writes accountant Noreen O’Sullivan

The government roadmap out of lockdown is complemented by a suite of business supports which businesses should be immediately taking advantage of.

A prerequisite to accessing many of the C-19 business supports is planning and forecasting in order to evidence the disruption C-19 has caused to the business.

Planning for the future should hinge on two crucial timeframes. Firstly, map out cashflows for the next 13 weeks. Once you have clarity on this, move quickly to make key decisions to preserve cash and reserves, make the business as lean and streamlined as possible and avail of the necessary business supports.

Cash is the lifeblood of any business and business owners must take difficult decisions fast to protect the cash position and maintain positive reserves.

Secondly, have clarity of business purpose. This will allow you to clearly map out the direction in which your business is going over the next 24 to 36 months and will drive decision making and act as a powerful performance catalyst.

Assessing the cashflow needs of your business in the midst of an unprecedented health crisis is undoubtedly a daunting and challenging task. However, try to maintain a positive mindset and do not undertake the journey alone. There are financial planning grants available from the Local Enterprise Offices and Enterprise Ireland to cover the cost of engaging business advisors to help you plan for the future.

To guide you on the journey, we have set out below practical steps to develop and implement an effective business plan supported by robust cashflow forecasts. Before embarking on this journey, it would be advisable to seek guidance from your bank and clarify the information they will require from you as part of any loan application.

Step 1: Gather financial information and assess current liquidity position

To give you a clear picture of the current financial position of your business, gather the latest set of financial accounts, up to date management accounts, cashflow statements, debtors and creditors listings and bank balances along with any previously prepared budgets, forecasts and Brexit scenario plans.

Identify how much cash your business currently has and any restrictions to accessing it. Establish a clear picture of the business assets and any debt finance over those assets.

Step 2: Scenario planning

Set out three potential scenarios regarding C-19 and Brexit, namely best case, worst case and a middle ground position. From there, consider what each of those scenarios might mean for your business, your supply chain and your sales over the next two to three years.

Scenario planning is not an exact science; the focus is understanding what might happen and what the different scenarios might mean for your business over the weeks, months and years ahead.

Utilise trusted information sources, lean on your support network and communicate with stakeholders to set out these scenarios. Do not make assumptions regarding the level of preparedness of your staff, suppliers and customers for the reopening of the economy.

Step 3: Prepare cashflow forecasts

Once you have painted a picture of the various scenarios that might emerge over the short to medium term, consider what they mean for your cashflows and identify where crunch points might arise.

Prepare cashflow forecasts for each of the three scenarios mapped out under Step 2 above and clearly set out the assumptions underpinning each of those scenarios. Map out the business cashflows for the next two to three years by preparing a weekly, or if possible daily, cashflow forecast for the next 13 weeks followed by a monthly cashflow forecast for the following 21 to 33 months.

The cashflows should be realistic, based upon when receipts and payments are likely to arise. A template cashflow planner can be downloaded from the SME support section of the AIB website.

Step 4: Assess financial needs and make decisions to protect your business

Your cashflow forecasts should give you a clear picture of your business and where and when the cash shortfalls are likely to arise over the short to medium term under each scenario. This information will equip you to respond in a fast measured way and make key decisions to secure the viability of your business.

Focus immediately on cutting costs, making your business as lean as possible and availing of appropriate business supports. From there, explore potential opportunities and challenges and decide upon actions to exploit the opportunities and address the challenges.

Step 5: Formalise your business plan

Once you have a clear understanding of the current position of your business and what the next 12 to 36 months might look like under the various scenarios, it should be relatively straightforward to commit your business plan to paper.

The SBCI have provided a practical template business plan as part of the guidance on the working capital loan scheme.

Step 6: Re-engage with your bank

Once you have a robust business plan, work with your bank manager to put appropriate facilities in place to cover expected cashflow crunch points. Business owners are understandably reluctant to borrow their way out of C-19 and this should be discussed with your bank manager as you explore potential options to meet the financial needs of your business.

Perhaps availing of the low cost C-19 Credit Guarantee Scheme, announced by government in May but requiring legislation to come into effect, to support SMEs over a three months to six-year period might be a viable option.

If your bank is not in a position to advance you credit, you may be eligible to avail of a loan of up to €50,000 from Microfinance Ireland or a repayable advance of up to €800,000 from Enterprise Ireland under the Sustaining Enterprise Fund. Alternatively, you might consider raising equity finance.

Step 7: Monitor forecasts and implement plans

Real time accurate financial information facilitates informed decision making and allows a business owner to steer their ship with confidence and communicate with stakeholders in a timely manner. Businesses should prepare weekly cashflow statements, and cashflow forecasts and the assumptions underpinning these should be monitored and revised as C-19 and Brexit develop and more information becomes available.

In conjunction with this, businesses should maintain a good line of communication with employees, bank manager, professional advisors, suppliers, customers and shareholders.